City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
Note: This shell is set up for Cities. References to the entity type are highlighted. Different
entity types can change the “City” references as needed.
The OPERS portion of the note presents information for the traditional plan only; it will need
to be edited to include the combined plan and member-directed plan if needed or material.
Items highlighted in green may need customized.
Note 2 - Summary of Significant Accounting Policies
Pensions
For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of
resources related to pensions, and pension expense, information about the fiduciary net position of the pension
plans and additions to/deductions from their fiduciary net positon have been determined on the same basis as
they are reported by the pension systems. For this purpose, benefit payments (including refunds of employee
contributions) are recognized when due and payable in accordance with the benefit terms. The pension
systems report investments at fair value.
Note 3 – Change in Accounting Principle and Restatement of Net Position
For 2015, the City implemented the Governmental Accounting Standards Board (GASB) Statement No. 68,
“Accounting and Financial Reporting for Pensions” and GASB Statement No. 71, “Pension Transition for
Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68.”
GASB 68 established standards for measuring and recognizing pension liabilities, deferred outflows of
resources, deferred inflows of resources and expense/expenditure. The implementation of this pronouncement
had the following effect on net position as reported December 31, 2014:
Net position December 31, 2014
Adjustments:
Net Pension Liability
Deferred Outflow - Payments Subsequent to Measurement Date
Restated Net Position December 31, 2014
1
Governmental
Activities
Business -Type
Activities
$0
$0
0
0
0
0
$0
$0
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
Fund
Net position December 31, 2014
Fund
$0
$0
$0
$0
0
0
0
0
0
0
0
0
$0
$0
$0
$0
Adjustments:
Net Pension Liability
Deferred Outflow - Payments
Subsequent to Measurement Date
Restated Net Position December 31, 2014
Total
Enterprise
Fund
Other than employer contributions subsequent to the measurement date, the City made no restatement for
deferred inflows/outflows of resources as the information needed to generate these restatements was not
available.
Note 11 - Defined Benefit Pension Plans
Net Pension Liability
The net pension liability reported on the statement of net position represents a liability to employees for
pensions. Pensions are a component of exchange transactions-–between an employer and its employees—of
salaries and benefits for employee services. Pensions are provided to an employee—on a deferred-payment
basis—as part of the total compensation package offered by an employer for employee services each financial
period. The obligation to sacrifice resources for pensions is a present obligation because it was created as a
result of employment exchanges that already have occurred.
The net pension liability represents the City’s proportionate share of each pension plan’s collective actuarial
present value of projected benefit payments attributable to past periods of service, net of each pension plan’s
fiduciary net position. The net pension liability calculation is dependent on critical long-term variables,
including estimated average life expectancies, earnings on investments, cost of living adjustments and others.
While these estimates use the best information available, unknowable future events require adjusting this
estimate annually.
Ohio Revised Code limits the City’s obligation for this liability to annually required payments. The City
cannot control benefit terms or the manner in which pensions are financed; however, the City does receive the
benefit of employees’ services in exchange for compensation including pension.
GASB 68 assumes the liability is solely the obligation of the employer, because (1) they benefit from employee
services; and (2) State statute requires all funding to come from these employers. All contributions to date
have come solely from these employers (which also includes costs paid in the form of withholdings from
employees). State statute requires the pension plans to amortize unfunded liabilities within 30 years. If the
amortization period exceeds 30 years, each pension plan’s board must propose corrective action to the State
legislature. Any resulting legislative change to benefits or funding could significantly affect the net pension
liability. Resulting adjustments to the net pension liability would be effective when the changes are legally
enforceable.
2
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
The proportionate share of each plan’s unfunded benefits is presented as a long-term net pension liability on
the accrual basis of accounting. Any liability for the contractually-required pension contribution outstanding at
the end of the year is included in intergovernmental payable on both the accrual and modified accrual bases of
accounting.
Plan Description – Ohio Public Employees Retirement System (OPERS)
Note: This shell includes state and local division, public safety division and law enforcement
division. The note should be customized to include only the divisions in which your local
government participates.
If contributions to the combined plan and the member directed plan are material, additional
disclosures should be included.
Plan Description - City employees, other than full-time police and firefighters, participate in the Ohio Public
Employees Retirement System (OPERS). OPERS administers three separate pension plans. The traditional
pension plan is a cost-sharing, multiple-employer defined benefit pension plan. The member-directed plan is a
defined contribution plan and the combined plan is a cost-sharing, multiple-employer defined benefit pension
plan with defined contribution features. While members (e.g. City employees) may elect the member-directed
plan and the combined plan, substantially all employee members are in OPERS’ traditional plan; therefore, the
following disclosure focuses on the traditional pension plan.
OPERS provides retirement, disability, survivor and death benefits, and annual cost of living adjustments to
members of the traditional plan. Authority to establish and amend benefits is provided by Chapter 145 of the
Ohio Revised Code. OPERS issues a stand-alone financial report that includes financial statements, required
supplementary information and detailed information about OPERS’ fiduciary net position that may be obtained
by visiting https://www.opers.org/financial/reports.shtml, by writing to the Ohio Public Employees Retirement
System, 277 East Town Street, Columbus, Ohio 43215-4642, or by calling 800-222-7377.
Senate Bill (SB) 343 was enacted into law with an effective date of January 7, 2013. In the legislation,
members were categorized into three groups with varying provisions of the law applicable to each group. The
following table provides age and service requirements for retirement and the retirement formula applied to final
average salary (FAS) for the three member groups under the traditional plan as per the reduced benefits
adopted by SB 343 (see OPERS CAFR referenced above for additional information):
3
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
Group A
Eligible to retire prior to
January 7, 2013 or five years
after January 7, 2013
Group B
20 years of service credit prior to
January 7, 2013 or eligible to retire
ten years after January 7, 2013
Group C
Members not in other Groups
and members hired on or after
January 7, 2013
State and Local
State and Local
State and Local
Age and Service Requirements:
Age 60 with 60 months of service credit
or Age 55 with 25 years of service credit
Age and Service Requirements:
Age 60 with 60 months of service credit
or Age 55 with 25 years of service credit
Age and Service Requirements:
Age 57 with 25 years of service credit
or Age 62 with 5 years of service credit
Formula:
2.2% of FAS multiplied by years of
service for the first 30 years and 2.5%
for service years in excess of 30
Formula:
2.2% of FAS multiplied by years of
service for the first 30 years and 2.5%
for service years in excess of 30
Formula:
2.2% of FAS multiplied by years of
service for the first 35 years and 2.5%
for service years in excess of 35
Public Safety
Age and Service Requirements:
Age 48 with 25 years of service credit
or Age 52 with 15 years of service credit
Law Enforcement
Age and Service Requirements:
Age 52 with 15 years of service credit
Public Safety
Age and Service Requirements:
Age 48 with 25 years of service credit
or Age 52 with 15 years of service credit
Law Enforcement
Age and Service Requirements:
Age 48 with 25 years of service credit
or Age 52 with 15 years of service credit
Public Safety
Age and Service Requirements:
Age 52 with 25 years of service credit
or Age 56 with 15 years of service credit
Law Enforcement
Age and Service Requirements:
Age 48 with 25 years of service credit
or Age 56 with 15 years of service credit
Public Safety and Law Enforcement
Public Safety and Law Enforcement
Public Safety and Law Enforcement
Formula:
2.5% of FAS multiplied by years of
service for the first 25 years and 2.1%
for service years in excess of 25
Formula:
2.5% of FAS multiplied by years of
service for the first 25 years and 2.1%
for service years in excess of 25
Formula:
2.5% of FAS multiplied by years of
service for the first 25 years and 2.1%
for service years in excess of 25
Final average Salary (FAS) represents the average of the three highest years of earnings over a member’s
career for Groups A and B. Group C is based on the average of the five highest years of earnings over a
member’s career.
Members who retire before meeting the age and years of service credit requirement for unreduced benefits
receive a percentage reduction in the benefit amount.
When a benefit recipient has received benefits for 12 months, an annual cost of living adjustment (COLA) is
provided. This COLA is calculated on the base retirement benefit at the date of retirement and is not
compounded. For those retiring prior to January 7, 2013, the COLA will continue to be a 3 percent simple
annual COLA. For those retiring subsequent to January 7, 2013, beginning in calendar year 2019, the COLA
will be based on the average percentage increase in the Consumer Price Index, capped at 3 percent.
Funding Policy - The Ohio Revised Code (ORC) provides statutory authority for member and employer
contributions as follows:
4
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
State
and Local
Public
Safety
Law
Enforcement
2015 Statutory Maximum Contribution Rates
Employer
Employee
14.0 %
10.0 %
18.1 %
*
18.1 %
**
2015 Actual Contribution Rates
Employer:
Pension
Post-employment Health Care Benefits
12.0 %
2.0
16.1 %
2.0
16.1 %
2.0
Total Employer
14.0 %
18.1 %
18.1 %
Employee
10.0 %
12.0 %
13.0 %
* This rate is determined by OPERS' Board and has no maximum rate established by ORC.
** This rate is also determined by OPERS' Board, but is limited by ORC to not more
than 2 percent greater than the Public Safety rate.
Employer contribution rates are actuarially determined and are expressed as a percentage of covered payroll.
The City’s contractually required contribution was $xxx,xxx for 2015. Of this amount, $xx,xxx is reported as
an intergovernmental payable.
Plan Description – Ohio Police & Fire Pension Fund (OPF)
Plan Description - City full-time police and firefighters participate in Ohio Police and Fire Pension Fund
(OPF), a cost-sharing, multiple-employer defined benefit pension plan administered by OPF. OPF provides
retirement and disability pension benefits, annual cost-of-living adjustments, and death benefits to plan
members and beneficiaries. Benefit provisions are established by the Ohio State Legislature and are codified in
Chapter 742 of the Ohio Revised Code. OPF issues a publicly available financial report that includes financial
information and required supplementary information and detailed information about OPF fiduciary net
position. The report that may be obtained by visiting the OPF website at www.op-f.org or by writing to the
Ohio Police and Fire Pension Fund, 140 East Town Street, Columbus, Ohio 43215-5164.
Upon attaining a qualifying age with sufficient years of service, a member of OPF may retire and receive a
lifetime monthly pension. OPF offers four types of service retirement: normal, service commuted, age/service
commuted and actuarially reduced. Each type has different eligibility guidelines and is calculated using the
member’s average annual salary. The following discussion of the pension formula relates to normal service
retirement.
For members hired after July 1, 2013, the minimum retirement age is 52 for normal service retirement with at
least 25 years of service credit. For members hired on or before after July 1, 2013, the minimum retirement
age is 48 for normal service retirement with at least 25 years of service credit.
The annual pension benefit for normal service retirement is equal to a percentage of the allowable average
annual salary. The percentage equals 2.5 percent for each of the first 20 years of service credit, 2.0 percent for
each of the next five years of service credit and 1.5 percent for each year of service credit in excess of 25 years.
5
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
The maximum pension of 72 percent of the allowable average annual salary is paid after 33 years of service
credit.
Under normal service retirement, retired members who are at least 55 years old and have been receiving OPF
benefits for at least one year may be eligible for a cost-of-living allowance adjustment. The age 55 provision
for receiving a COLA does not apply to those who are receiving a permanent and total disability benefit and
statutory survivors.
Members retiring under normal service retirement, with less than 15 years of service credit on July 1, 2013,
will receive a COLA equal to either three percent or the percent increase, if any, in the consumer price index
(CPI) over the 12-month period ending on September 30 of the immediately preceding year, whichever is less.
The COLA amount for members with at least 15 years of service credit as of July 1, 2013 is equal to three
percent of their base pension or disability benefit.
Funding Policy - The Ohio Revised Code (ORC) provides statutory authority for member and employer
contributions as follows:
Police
2015 Statutory Maximum Contribution Rates
Employer
Employee:
January 1, 2015 through July 1, 2015
July 2, 2015 through December 31, 2015
Firefighters
19.50 %
24.00 %
11.50 %
12.25 %
11.50 %
12.25 %
2015 Actual Contribution Rates
Employer:
Pension
Post-employment Health Care Benefits
19.00 %
0.50
23.50 %
0.50
Total Employer
19.50 %
24.00 %
Employee:
January 1, 2015 through July 1, 2015
July 2, 2015 through December 31, 2015
11.50 %
12.25 %
11.50 %
12.25 %
Employer contribution rates are expressed as a percentage of covered payroll. The City’s contractually
required contribution to OPF was $xxx,xxx for 2015. Of this amount $xx,xxx is reported as an
intergovernmental payable.
In addition to current contributions, the City pays installments on a specific liability of the City incurred when
the State of Ohio established the statewide pension system for police and fire fighters in 1967. As of
December 31, 2015, the specific liability of the City was $xx,xxx payable in semi-annual payments through the
year 2035.
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of
Resources Related to Pensions
6
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
The net pension liability for OPERS was measured as of December 31, 2014, and the total pension liability
used to calculate the net pension liability was determined by an actuarial valuation as of that date. OPF’s total
pension liability was measured as of December 31, 2014, and was determined by rolling forward the total
pension liability as of January 1, 2014, to December 31, 2014. The City's proportion of the net pension
liability was based on the City's share of contributions to the pension plan relative to the contributions of all
participating entities. Following is information related to the proportionate share and pension expense:
OPERS
Proportionate Share of the Net
Pension Liability
Proportion of the Net Pension
Liability
Pension Expense
OP&F
Total
$0
0.000000%
$0
$0
$0
0.0000000%
$0
$0
At December 31, 2015, the City reported deferred outflows of resources and deferred inflows of resources
related to pensions from the following sources:
OPERS
Deferred Outflows of Resources
Net difference between projected and
actual earnings on pension plan investments
City contributions subsequent to the
measurement date
Total Deferred Outflows of Resources
Deferred Inflows of Resources
Differences between expected and
actual experience
OP&F
Total
$0
$0
$0
0
$0
0
$0
0
$0
$0
$0
$0
$xxx,xxx reported as deferred outflows of resources related to pension resulting from City contributions
subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year
ending December 31, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of
resources related to pension will be recognized in pension expense as follows:
OPERS
OP&F
Total
Year Ending December 31:
2016
2017
2018
2019
Total
7
$0
0
0
0
$0
0
0
0
$0
0
0
0
$0
$0
$0
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
Actuarial Assumptions - OPERS
Actuarial valuations of an ongoing plan involve estimates of the values of reported amounts and assumptions
about the probability of occurrence of events far into the future. Examples include assumptions about future
employment, mortality, and cost trends. Actuarially determined amounts are subject to continual review or
modification as actual results are compared with past expectations and new estimates are made about the
future.
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as
understood by the employers and plan members) and include the types of benefits provided at the time of each
valuation. The total pension liability in the December 31, 2014, actuarial valuation was determined using the
following actuarial assumptions, applied to all periods included in the measurement:
Wage Inflation
Future Salary Increases, including inflation
COLA or Ad Hoc COLA
Investment Rate of Return
Actuarial Cost Method
3.75 percent
4.25 to 10.05 percent including wage inflation
3 percent, simple
8 percent
Individual Entry Age
Mortality rates were based on the RP-2000 Mortality Table projected 20 years using Projection Scale AA.
For males, 105 percent of the combined healthy male mortality rates were used. For females, 100 percent
of the combined healthy female mortality rates were used. The mortality rates used in evaluating disability
allowances were based on the RP-2000 mortality table with no projections. For males 120 percent of the
disabled female mortality rates were used set forward two years. For females, 100 percent of the disabled
female mortality rates were used.
The most recent experience study was completed for the five year period ended December 31, 2010.
The long-term rate of return on defined benefit investment assets was determined using a building-block
method in which best-estimate ranges of expected future real rates of return are developed for each major asset
class. These ranges are combined to produce the long-term expected real rate of return by weighting the
expected future real rates of return by the target asset allocation percentage, adjusted for inflation.
OPERS manages investments in four investment portfolios: the Defined Benefits portfolio, the Health Care
portfolio, the 115 Health Care Trust portfolio and the Defined Contribution portfolio. The Defined Benefit
portfolio includes the investment assets of the Traditional Pension Plan, the defined benefit component of the
Combined Plan, the annuitized accounts of the Member-Directed Plan and the VEBA Trust. Within the
Defined Benefit portfolio, contributions into the plans are all recorded at the same time, and benefit payments
all occur on the first of the month. Accordingly, the money-weighted rate of return is considered to be the
same for all plans within the portfolio. The money weighted rate of return, net of investments expense, for the
Defined Benefit portfolio is 6.95 percent for 2014.
The allocation of investment assets with the Defined Benefit portfolio is approved by the Board of Trustees as
outlined in the annual investment plan. Plan assets are managed on a total return basis with a long-term
objective of achieving and maintaining a fully funded status for the benefits provided through the defined
benefit pension plans. The table below displays the Board-approved asset allocation policy for 2014 and the
long-term expected real rates of return:
8
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
Asset Class
Fixed Income
Domestic Equities
Real Estate
Private Equity
International Equities
Other investments
Total
Target
Allocation
Weighted Average
Long-Term Expected
Real Rate of Return
(Arithmetic)
23.00 %
19.90
10.00
10.00
19.10
18.00
2.31 %
5.84
4.25
9.25
7.40
4.59
100.00 %
5.28 %
Discount Rate The discount rate used to measure the total pension liability was 8 percent. The projection of
cash flows used to determine the discount rate assumed that contributions from plan members and those of the
contributing employers are made at the statutorily required rates. Based on those assumptions, the pension plan’s
fiduciary net position was projected to be available to make all projected future benefits payments of current plan
members. Therefore, the long-term expected rate of return on pension plan investments was applied to all
periods of projected benefit payments to determine the total pension liability.
Sensitivity of the City’s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate
The following table presents the City’s proportionate share of the net pension liability calculated using the
current period discount rate assumption of 8 percent, as well as what the City’s proportionate share of the net
pension liability would be if it were calculated using a discount rate that is one-percentage-point lower (7
percent) or one-percentage-point higher (9 percent) than the current rate:
1% Decrease
(7.00%)
City's proportionate share
of the net pension liability
$0
Current
Discount Rate
(8.00%)
$0
1% Increase
(9.00%)
$0
Actuarial Assumptions – OPF
OPF’s total pension liability as of December 31, 2014 is based on the results of an actuarial valuation date of
January 1, 2014, and rolled-forward using generally accepted actuarial procedures. The total pension liability
is determined by OPF’s actuaries in accordance with GASB Statement No. 67, as part of their annual
valuation. Actuarial valuations of an ongoing plan involve estimates of reported amounts and assumptions
about probability of occurrence of events far into the future. Examples include assumptions about future
employment mortality, salary increases, disabilities, retirements and employment terminations. Actuarially
determined amounts are subject to continual review and potential modifications, as actual results are compared
with past expectations and new estimates are made about the future.
Key methods and assumptions used in calculating the total pension liability in the latest actuarial valuation,
prepared as of January 1, 2014, are presented below:
9
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
Valuation Date
Actuarial Cost Method
Investment Rate of Return
Projected Salary Increases
Payroll Increases
Inflation Assumptions
Cost of Living Adjustments
January 1, 2014
Entry Age Normal
8.25 percent
4.25 percent to 11 percent
3.75 percent
3.25 percent
2.60 percent and 3.00 percent
Rates of death are based on the RP2000 Combined Table, age-adjusted as follows. For active members, set
back six years. For disability retirements, set forward five years for police and three years for firefighters. For
service retirements, set back zero years for police and two years for firefighters. For beneficiaries, set back zero
years. The rates are applied on a fully generational basis, with a base year of 2009, using mortality
improvement Scale AA.
The most recent experience study was completed January 1, 2012.
The long-term expected rate of return on pension plan investments was determined using a building-block
approach and assumes a time horizon, as defined in the Statement of Investment Policy. A forecasted rate of
inflation serves as the baseline for the return expectation. Various real return premiums over the baseline
inflation rate have been established for each asset class. The long-term expected nominal rate of return has
been determined by calculating a weighted averaged of the expected real return premiums for each asset class,
adding the projected inflation rate and adding the expected return from rebalancing uncorrelated asset classes.
Best estimates of the long-term expected geometric real rates of return for each major asset class included in
OPF’s target asset allocation as of December 31, 2014 are summarized below:
Asset Class
Cash and Cash Equivalents
Domestic Equity
Non-US Equity
Core Fixed Income *
Global Inflation Protected *
High Yield
Real Estate
Private Markets
Timber
Master Limited Partnerships
Total
Target
Allocation
%
16.00
16.00
20.00
20.00
15.00
12.00
8.00
5.00
8.00
Long Term Expected
Real Rate of Return
(0.25) %
4.47
4.47
1.62
1.33
3.39
3.93
6.98
4.92
7.03
120.00 %
* levered 2x
OPF’s Board of Trustees has incorporated the “risk parity” concept into OPF’s asset liability valuation with the
goal of reducing equity risk exposure, which reduces overall Total Portfolio risk without sacrificing return, and
creating a more risk-balanced portfolio based on their relationship between asset classes and economic
environments. From the notional portfolio perspective above, the Total Portfolio may be levered up to 1.2
times due to the application of leverage in certain fixed income asset classes.
10
City of Generic, Ohio
Notes to the Basic Financial Statements
For the Year Ended December 31, 2015
Discount Rate The total pension liability was calculated using the discount rate of 8.25 percent. The
projection of cash flows used to determine the discount rate assumed the contributions from employers and
from the members would be computed based on contribution requirements as stipulated by State statute.
Projected inflows from investment earning were calculated using the longer-term assumed investment rate of
return 8.25 percent. Based on those assumptions, the plan’s fiduciary net position was projected to be
available to make all future benefit payments of current plan members. Therefore, a long-term expected rate of
return on pension plan investments was applied to all periods of projected benefits to determine the total
pension liability.
Sensitivity of the City's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate
Net pension liability is sensitive to changes in the discount rate, and to illustrate the potential impact the
following table presents the net pension liability calculated using the discount rate of 8.25 percent, as well as
what the net pension liability would be if it were calculated using a discount rate that is one percentage point
lower (7.25 percent), or one percentage point higher (9.25 percent) than the current rate.
1% Decrease
(7.25%)
City's proportionate share
of the net pension liability
$0
11
Current
Discount Rate
(8.25%)
$0
1% Increase
(9.25%)
$0